Meaningful technology transfer for climate disruption.

• Author: Driesen, David M.

Any serious effort to address global climate disruption will require effective technology transfer. Developing countries with growing emissions must somehow make emission reductions without curtailing the economic development needed to alleviate poverty. This must be done in order to permit global abatement on the scale required to avoid dangerous climate disruption. Given the limited financial and technical capabilities of developing countries, this task seems impossible without technology transfer As policymakers continue to embrace and enhance technology transfer options, it is critical to understand the relationship between technology transfer and policy development in order to formulate more effective policies. Whether through market mechanisms, such as the Clean Development Mechanism (CDM), or direct aid programs, such as the Green Climate Fund, we argue that technology transfer programs must support the elaboration of policies in developing countries by addressing three key issues: additionality, appropriate scale and the promotion of knowledge spillovers. We use these three principles to provide a framework for assessing the potential of both the CDM and direct financial aid to foster meaningful technology transfer, which we define as technology transfer that not only lowers the overall short-run costs of carbon reductions, but also enhances the capacity of these countries to address climate change more thoroughly in the future.

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Any serious effort to address global climate disruption will require effective technology transfer. To permit global abatement on the scale required to avoid dangerous climate disruption, developing countries with growing emissions must somehow make emission reductions without curtailing the economic development needed to alleviate poverty. Given the limited financial and technical capabilities of developing countries, this task seems impossible without technology transfer. Until recently, policymakers relied primarily on global carbon markets such as the Clean Development Mechanism (CDM) to foster technology transfer. However, such policies have been unable to deliver technology transfer at levels perceived as necessary by the international community. Acknowledging the insufficiency of current efforts at the 2009 UN Climate Change Conference in Copenhagen, negotiators agreed to establish the Copenhagen Green Climate Fund. This fund would provide $100 billion per year by 2020 to support mitigation and adaptation actions in developing countries, a number that dwarfs the $2.7 billion value of all CDM transactions conducted in 2009. These programs might well fund carbon abatement and sequestration projects in developing countries that do not generate credits for the CDM program.

As policymakers continue to embrace and enhance technology transfer options, it is critical to understand the relationship between technology transfer and policy elaboration in developing countries. Whether through market mechanisms, such as the CDM, or direct aid programs, such as the Green Climate Fund, we argue that technology transfer programs must support policy development in developing countries by addressing three key issues: the promotion of knowledge spillovers, additionality and appropriate scale. We use these three principles to provide a framework for assessing the potential of both the CDM and direct financial aid to foster meaningful technology transfer. Meaningful technology transfer not only lowers the overall short-run costs of carbon reductions, but also enhances the capacity of these countries to more thoroughly address climate change in the future.

THE CLEAN DEVELOPMENT MECHANISM AND DIRECT AID AS TECHNOLOGY TRANSFER TOOLS

The CDM authorizes developed countries or their regulated firms to satisfy some of their emission reduction obligations under the Kyoto Protocol by purchasing emission reduction credits. These credits come from project developers implementing technological changes to reduce greenhouse gas emissions in developing countries that have no obligations to reduce emissions. Because carbon emissions are a global public good, the CDM can help developed countries reach their emission targets at a lower total cost by allowing firms in developed countries to substitute cheaper emission reductions in developing countries for more expensive reductions in their home country.

This trading approach to technology transfer contrasts with the model of government aid successfully used in the Montreal Protocol on Substances that Deplete the Ozone Layer. Under the Montreal Protocol, developed country governments contributed significant funding to a Global Environment Facility (GEF) to provide substitutes for ozone-depleting chemicals to developing countries. In return, developing countries agreed to phase out their consumption of ozone-depleting substances a decade after developed countries had done so. The Copenhagen Accord increases the prospects of government aid playing a significant role in technology transfer under the Kyoto Protocol as well.

Our framework helps evaluate the relative merits of these two approaches, as well as possible forms that they may take. In doing so, it is important to understand the motivations of each approach. The Kyoto Protocol states two purposes for the CDM: help developed countries meet their emission reduction obligations and help developing countries achieve sustainable development. (1) While CDM projects may result in technology transfer, technology transfer is not the explicit goal of the program. Because CDM credits help developed countries meet their emission reduction obligations, credits developed in a trading scheme do not add any direct environmental value to ongoing global efforts to address global climate disruption. Rather, credits become substitutes for developed country abatement. Regulated firms and countries buy credits in order to allow themselves to lessen their own abatement efforts, doing so when purchasing a credit is cheaper than the cost of reducing their own emissions. Thus, emission reduction credits add cost effectiveness, not extra emission reductions, to global efforts to abate greenhouse gases.

Although this process is consistent with the original goals of the CDM (i.e., cost reduction for Annex I countries), it highlights a key environmental advantage of a government aid approach in comparison with the CDM. Government aid is used to purchase reductions in developing countries in addition to reductions conducted by developed countries, rather than purchasing developing country reductions in lieu of developed country reductions. Moreover, technology transfer is implicitly, if not explicitly, a goal of such aid purchases. For example, the Clean Technology Fund administered by the World Bank has received more than $5 billion in pledges from developed country donors to support demonstration, deployment and transfer of low-carbon technologies to developing countries. (2) Therefore, a key difference between a government aid model and the CDM is that the CDM focuses on enhancing cost effectiveness of developed country efforts, whereas government aid focuses on increasing total reductions by augmenting current abatement efforts.

The CDM's emphasis on enhancing cost effectiveness also has important long-term implications for climate policy. Critics of the CDM often raise concern over the problem of the "low-hanging fruit." (3) Based on the economic principle of diminishing returns, which holds that increased investment produces marginally smaller results as the most profitable options are pursued first, the low-hanging fruit critique argues that CDM projects use up low-cost abatement options in non-Annex I countries, making future emission reductions by these countries more costly. While economists would generally find using these low-cost options first desirable, proponents of the "low-hanging fruit" theory worry that crediting developed countries now for financing exploitation of the cheapest abatement options makes these opportunities unavailable for later use by developing countries. As such, it will be more difficult for developing countries to later reduce emissions on their own making them less willing to agree to binding emission reductions at a later date.

It is possible, however, for technology...